As is so often the case with regulation, it’s almost impossible to get an answer to a simple question like this without ending up being barraged by unhelpful and unfamiliar technical terms.  With respect to investment firms like our clients, the answer is easy:

“If, in the course of business, you carry out designated investment business with respect to specified investments and the activity isn’t excluded, or you’re not exempt, you need to be authorised.” 

But really, what use is that?!

The rules genuinely are detailed and complicated, and the terminology is technical so this can’t be a full guide but we can unpack the ’easy answer’ above, separate out the different concepts and give a quick introduction to them so that you know what questions to ask next…

1) in the course of business
This part of the answer is not clearly defined by law but most people know whether they are doing something in the course of business or not.  If it could make you money (whether or not it actually does) and if it’s a regular activity rather than a one-off happening, it’s likely to fall within “the course of business”.

2) designated investment business
This is just a part of the much wider “regulated activities” which range from insurance business to banking but these are the ones undertaken by most investment firms.  These include (among others):

• arranging investments,
• advising on investments,
• operating a collective investment scheme,
• managing investments (eg in an EIS fund).

Again, common sense applies; if it feels like it should be regulated, it probably is.

3) specified investments
These are the investment instruments that are regulated.  This category includes shares, options, warrants, debentures, units in a collective investment scheme (fund), government securities, &c..

There are several popular alternative asset classes that aren’t specified investments, most notably property (real estate) but also art, wine, stamps, antiques, and the like.  You do not, therefore, need to be regulated in order to advise someone on their portfolio of wines. 

Even within these asset classes, some caution is required; because units and shares are specified investments, advising somebody to buy into an art fund, or to buy a special purpose vehicle which owns a building, is likely to be regulated.

4) excluded activity
These are activites which, were it not for the specific exemption, would require you to be authorised.  They include publishing media reports on financial matters, setting up employee share schemes, and buying or selling investments on your own behalf (as long as you don’t hold yourself out to the market as willing to do so).

5) exempt persons
Finally, these are people who have specific exemptions from requiring FSA authorisation because of who they are.  These include regulated professional firms (mainly lawyers and accountants, where the activity is incidental to the professional services they offer), appointed representatives, central banks, and certain large investment exchanges.  If you were going to fall into this category, you’d probably know already.

If you’re not sure whether you need to be authorised, it’s likely to be because you’re not sure if the activity you’re undertaking counts as ’regulated activity’ or if you’re involved with ’specified investments’ (2 & 3 above).  These are the key areas where you may want to seek more advice.

Of course, if you’d like to discuss with us, whether or not you need regulation, please contact Simon Webber, StypersonPOPE’s MD, either by telephone or on sw@strategic-compliance.co.uk.

“The rain, it raineth on the just and also on the unjust fella;
but chiefly on the just, because the unjust steals the just’s umbrella.”
Sam Ervin – US Senator 1954 – 1974 

It would undoubtedly be easier to make money if we chose not to follow the increasing number of regulations to which we are subject.  After all, it’s probably more profitable to rob a bank than to run one.

However, as we offer compliance advice (as opposed to non-compliance advice) we feel the real trick is knowing how to make the most of what can be acheived within the regulations. 

It’s vital not to see the compliance function as a brake on enterprise; it must be a partner in the firm’s strategic development; if it’s not, then you need to review your compliance function urgently.

If you would like to discuss any aspects of strategic compliance advice, please call or e-mail us.

All FSA-authorised firms are required to ensure that their businesses are not used to facilitate financial crime.  Since December 2007, many unregulated companies have joined them, becoming responsible to other regulators including HMRC and the Office of Fair Trading (OFT).

The Joint Money Laundering Steering Group (JMLSG), part of the British Bankers’ Association (BBA), has devised rules for all of these businesses to follow in their anti-money laundering efforts.  Because of our familiarity with these rules, we can prepare appropriate procedures based on your business’ exposure to the risk of financial crime.  We can tailor these to fit your existing business processes and ensure that they are easily understood, implemented and overseen.

We are able to offer the services of an FSA and HMRC-approved Money Laundering Reporting Officer who can oversee the processes we implement and report to your Board, SOCA or you relevant authority as required. 

If you would like to discuss any aspects of money laundering reporting, please call or e-mail Simon Webber, our Managing Director.

As well as ongoing and strategic advice, most firms will require occasional, more intensive advice either to acheive a specific goal or to overcome a particular issue. 

Examples of our recent acheivements include:

• Designing strategic alterations to a client’s permissions and corporate structure to reduce FSA-required capital reserves by over 90%;
• Overseeing an application to the FSA from a new corporate finance firm;
• Creating and writing processes for two corporate finance firms;
• Updating documents and processes after FSA rule changes (CRD and MiFID);
• Creating and writing processes for a new division operating in a new market;
• Designing a plan for an innovative private equity investment scheme to market directly to individuals rather than IFAs;
• Creating compliant documents for two property investment funds; and
• Designing business models to avoid unecessary (and costly) regulation for unauthorised firms.

If you would like to discuss any projects or issues that require strategic compliance advice, please do call or e-mail Simon Webber, our Managing Director.

It is vital to the devlelopment of any regulated business that the Board is well advised on compliance and that the advice is strategic, not reactive.  It is unlikely that smaller Corporate Finance, Private Equity and Collective Investment firms will need to have a full time team member to advise on or oversee compliance and that is why they should look to an advisor who can be on hand when (and only when) required.

Examples of recent strategic advice to Boards includes:

• A corporate restructuring to reduce capital requirements
• Establishing a division, in a new business area, under new FSA rules
• Board-level compliance training (formal and informal)
• Effecting variations of permissions to cut costs and increase scope
• Performing strategic assesments of risk (including ICAAP)
• Creating business procedures for new and existing businesses
• Planning marketing, and creating documents, for funds and schemes

If you would like to discuss any aspects of strategic compliance advice, please do call or e-mail us.

We’ve worked on a number of property development funds recently.  They have all been structured as unregulated collective investment schemes but have taken a variety of approaches in terms of structure, tax and regulation.

Often funds employ a combination of a Limited Partership for individual investors, and an Exempt Property Unity Trust (EPUT) for Capital Gains Tax exempt investors like Self-Invested Personal Pension (SIPP) schemes and Small Self-Administered (SSAS) pension schemes.  Usually, the EPUT is a partner in the Limited Partnership.

This is where it gets slightly more complicated… If the fund invests in property directly, the promotion of the fund may be more tightly restricted than if it invests in the equity of an unquoted company.  Many, in fact, do the latter.  This company may then purchase and develop the property, it may invest in a Special Purpose Vehicle (SPV), or it may make loans to a development company.

Often, where investments or property assets are based overseas, one or more of the companies is too and the limited partnership is usually ‘tax transparent’ so investors are responsible for paying their own tax.

Where the property investment fund is structured as an unregulated collective investment scheme, the promotion of the scheme will be heavily restricted (but often wider than firms think).

If, under the FSA’s rules you qualify as a High Net Worth Individual or a Sophisticated Investor, feel free to download and use one of the certificates (the criteria for eligibility are contained in each certificate):

• Certified High Net Worth Individual – Collective Investment Schemes
• Certified High Net Worth Individual – Financial Promotion
• Self-Certified Sophisticated Investor – Collective Investment Scheme
• Self-Certified Sophisticated Investor – Financial Promotions

Each certificate is valid for 12 months from the date of signature.  We don’t need to see these certificates because we’re not promoting any investments but if the criteria apply and you sign one of these certificates then other firms will be able to promote relevant investments to you.  They will probably ask to see a copy.

The Financial Services Authority (FSA) categorises individual investors in a number of ways and allows certain firms to promote their services, products, investment schemes and funds to different groups.  These categories include:

• Certified High Net Worth Investors
• Certified Sophisticated Investors
• Self-Certified Sophisticated Investors
• Qualified Investors
• Individuals for whom the investment is assesed as ’suitable’
• Individuals assesed as having ‘adequate knowledge & experience’
• Individuals who have invested in ’substantially similar’ funds

An investor may fall into any or all of these categories and may be a ”retail” or “elective professional” investor at the same time – to better understand the various categories of investor and the exemptions that they may be able to fit into, please e-mail or call me so that we can discuss it in more detail. 

(If you are a High Net Worth Individual or a Sophisticated Investor, you can find downloadable copies of the investor certificates here.)

IFAs are not the only route. 
“Unregulated Collective Investment Scheme” (UCIS) is something of a misnomer.  Far from being unregulated, the FSA restrict them them very tightly indeed – for funds structured as a UCIS, there is a simple edict:

“Such schemes cannot be marketed to the general public and are otherwise restricted in their promotion.“

As a result, the promotion of unregulated collective investment schemes, must be carried out very carefully and only to selected groups of investors.  Often the only route considered is through IFAs but in fact any authorised firm, and even unauthorised firms, can promote a UCIS as long as the approach is planned carefully and carried out correctly.

Summary Documents
For the sake of making the fund more attractive to investors, the detail of the information memorandum (IM) needs to be distilled, summarised and presented in a more user-friendly, marketing-led form.  Although secondary to the IM, this document must still meet the stringent demands of the FSA.  We produce summary documents, ensuring compliance, and with marketing expertise on hand, as well as design and print facilities, we can offer a full service if required.

Alternative Routes to Market
For some funds, IFAs may not be the best (or at least the only) route to market and with our assistance, General Partners, Managers, Advisers, Operators and Promoters of such schemes can draw up a marketing plan, draft documents and a produce a set of procedures which allows them to engage with individual investors under specific exemptions to the rules.

Simon Webber

Simon is an FSA-approved Compliance Officer, Money Laundering Reporting Officer and Director. 

He serves on the Boards of a corporate finance and early-stage investment house, a business start-up incubator, and a Non-Executive Director placement service. 

He also holds two undergraduate degrees with honours and a masters degree.  He is a founder member of a regional committee for the Institute of Directors and is proud to be a Director of a charitable grantmaker giving over £5m per year to community projects. 

If you would like to speak to Simon about any aspect of compliance, please call or e-mail him.

FSA Reporting
Whereas much attentention is paid to ensuring that management have ready access to financial snapshots of the business’ performance all too often, compliance information must be gathered each time it is required.  Designing a simple and appropriate method of making compliance information available to management makes FSA reporting painless and allows a more effective understanding of the firm’s risks and warning signals.

Relationship Management
There are many people involved in the compliance of an FSA-authorised firm, including the Board, the compliance staff, the client-facing staff, external advisors, laywers, and the FSA themselves (the firm contact centre, the change in control team, the approval application team…).  Each of these has a role to play and the relationships must be managed by somebody who has an understanding of the wider compliance goals and can do so without disruption to the smooth running of the firm.

If you would like to discuss the management of compliance relationships, whether internal or external to the firm, please call or e-mail us.

As well as ongoing advice, most firms will require occasional, more intensive, advice either to acheive a specific strategic goal or to overcome a particular issue. 

Examples of our recent acheivements include:

• Designing strategic alterations to a client’s permissions and corporate structure to reduce FSA-required capital reserves by over 90%
• Overseeing an application to the FSA from a new corporate finance firm
• Creating and writing processes for two corporate finance firms
• Updating documents and processes after FSA rule changes (CRD and MiFID)
• Creating and writing processes for a new division operating in a new market
• Designing a plan for an innovative private equity investment scheme to market directly to individuals rather than IFAs
• Creating compliant summary documents for an overseas property investment fund

If you would like to discuss any projects or issues that require strategic compliance advice, please do call or e-mail us.

“The rain, it raineth on the just and also on the unjust fella;
but chiefly on the just, because the unjust steals the just’s umbrella.”
Sam Ervin – US Senator 1954 – 1974 

It would undoubtedly be easier to make money if we chose not to follow the increasing number of regulations to which we are subject.  After all, it’s probably more profitable to rob a bank than to run one.  However, as we offer compliance advice (as opposed to non-compliance advice) we feel the real trick is knowing how to make the most of what can be acheived within the regulations. 

It’s vital not to see the compliance function as a brake on enterprise; it must be a partner in the firm’s strategic development; if it’s not, then you need to review your compliance function urgently.

If you would like to discuss any aspects of strategic compliance advice, please call or e-mail us.

It is vital to the devlelopment of any regulated business that the Board is well advised on compliance and that the advice is strategic, not reactive.  It is unlikely that smaller Corporate Finance, Private Equity and Collective Investment firms will need to have a full time team member to advise on or oversee compliance and that is why they should look to an advisor who can be on hand when (and only when) required.

Examples of recent strategic advice to Boards includes:

• A corporate restructuring to reduce capital requirements
• Establishing a division, in a new business area, under new FSA rules
• Board-level compliance training (formal and informal)
• Effecting variations of permissions to cut costs and increase scope
• Performing strategic assesments of risk (including ICAAP)
• Creating business procedures for new and existing businesses
• Planning marketing, and creating documents, for funds and schemes

If you would like to discuss any aspects of strategic compliance advice, please do call or e-mail us.